"When the Patent System is Attacked!" -- The White House Task Force on High-Tech Patent Issues

On February 14, 2013, President Obama stated in reference to non-practicing Patent Assertion Entities ("PAEs") (aka "Patent Trolls") "they don't actually produce anything themselves. They're just trying to essentially leverage and hijack somebody else's idea and see if they can extort some money out of them . . . ." See Patent Assertion and U.S. Innovation ("Patent Assertion Report"), Executive Office of the President, June 2013, page 2. Of course, when anybody equates the patent system to extortion, it is pretty certain nothing good can come of it. And, earlier today, the White House helped prove that maxim by releasing its Fact Sheet: White House Task Force on High-Tech Patent Issues – Legislative Priorities & Executive Actions. This Fact Sheet provided seven different legislative recommendations and five executive actions, which we detail below. In addition, at approximately the same time, the National Economic Council and the Council of Economic Advisors released the Patent Assertion Report, apparently to provide the justification for the President's recommendations and actions. Finally, Gene Sperling reported on the subject in a blog post entitled "Taking on Patent Trolls to Protect American Innovation," found on the White House blog.

The President's release of his Fact Sheet comes at a time when several new bills have already been introduced in Congress. The most recent bill was introduced in the House by Representative Goodlatte on May 23, 2013 as a discussion draft, and is the most comprehensive of the group. Patent Docs will report on this bill in a future post. Whether any of these bills will get any traction this year is unclear, and unlikely. In fact, they appear to stem from previous remarks made by the President, so it is unclear who is steering this bus. Nevertheless, it does appear that public sentiment for the patent system, and non-practicing PAEs in particular, is at a low point. For example, the WBEZ program "This American Life" featured an episode this past weekend entitled "When Patents Attack . . . Part 2!" The program focused almost exclusively on a single patent case stemming from the program's investigation of Intellectual Ventures. From that single case, the program extrapolated all the perceived problems to be indicative of the entire patent system, leaving the uninitiated to probably question why we even have a patent system in the first place. And, unfortunately, the story was incredibly one-sided, with the "reporters" choosing to interview a software engineer on the merits of the patent system, but conveniently neglecting to speak to a patent attorney on the same subject. The timing of the episode also seems a little more than coincidental, considering that the President's Fact Sheet was released days later, and the examples and anecdotes presented in the Patent Assertion Report are similar to those related in the episode. Nevertheless, with all of this public exposure on the "evils" of the patent system, it is possible that Patent Reform, Take 2, may be just around the corner.

The real "evil" that is addressed by the President and the Patent Assertion Report is that of non-practicing PAEs. Interestingly, the Patent Assertion Report goes to great length to explain that non-practicing "patent intermediaries" can play a useful role in a successful patent system. Such intermediaries can create liquidity in the intellectual property market, helping inventors and manufacturers get together so that patented inventions can be commercialized. However, as the Patent Assertion Report explains, the problem is when patent intermediaries step over the line and emerge as patent trolls. In case it wasn't clear from the name, patent trolls are to be viewed as evil, hindering innovation by focusing on aggressive litigation instead of research and development. Of course, as with any line, determining where it actually is drawn can be problematic. Even more difficult is crafting legislation to selectively target non-practicing PAEs without entangling the "good" patent intermediaries, much less all patent holders, whether practicing or not.

The good news (at least for many readers of this blog) is that the biotech and pharmaceutical industries appear to be out of the cross-hairs of these initiatives. In fact, the Patent Assertion Report touts these industries as an example of how the current system can be effective. For example, in discussing the evils of functional claiming, the report highlights the pharmaceutical industry as getting it right ("For example, several patents have been awarded for the function of reducing cholesterol; each patent covers a different chemical compound -- a different means of providing that function." Patent Assertion Report at page 8). Nevertheless, because of the difficulty in making legislative and executive initiatives non-discriminatory, it is also important for those in these fields to pay attention to what is currently happening in Washington.

As for the specific legislative recommendations that "would have immediate effect of some major problems innovators face," the President's Fact Sheet suggested:

1. Require patentees and applicants to disclose the "Real Party-in-Interest"

2. Permit more discretion in awarding fees to prevailing parties in patent cases

3. Expand the PTO's transitional program [to include a broader range of computer-enabled patents]

4. Protect off-the-shelf use by consumers and businesses

5. Change the ITC standard for obtaining an injunction

6. Use demand letter transparency to help curb abusive suits, and

7. Ensure the ITC has adequate flexibility in hiring

Several of the newly introduced bills already address some of these concerns, so it will be interesting to see if the additional recommendations are incorporated into this already existing legislation.

The White House also promises that it is taking executive action starting now on five initiatives. Of course, most of these require some action on behalf of the Patent Office, and it is unclear whether there has been coordination on these issues. These initiatives are:

1. Making "Real Party-in-Interest" the New Default

2. Tightening Functional Claiming

3. Empowering Downstream Users

4. Expanding Dedicated Outreach and Study, and

5. Strengthen Enforcement Process of Exclusion Orders

Patent Docs will continue to report on any updates regarding these initiatives and legislative recommendations.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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